Are you struggling with how to pay off your increasing debts? Well, you’re not alone! A recent survey has shown that a typical household in South Africa has over 3 credit cards individually with the overall debt amounting to over $13,000. The worst part is that people tend to pay off the absolute minimum amount for each month, making the debt accumulated thus far appear like a life sentence.
If you’re serious about managing your debt, you should certainly consider applying for a debt consolidation loan for lowering your payments. In this post, we’ll give you all the information you need to make the right decision about whether or not debt consolidation loans are the right option for you in terms of making your life debt-free.
The Basics of Debt Consolidation Loan
Rather than applying for a series of different types of loans, you can opt for a debt consolidation loan to waive off all your debts easily and conveniently. When you opt for a debt consolidation loan, it offers you the opportunity to get access to ample cash for paying off all the loan amount effectively. At the same time, in return, you would get access to a single loan option as well as a single amount for monthly payments.
You can make use of the single-loan approach for clearing or paying off the payday loans along with debts for your credit cards, medical expenses, and so more. However, the best part about applying for a debt consolidation loan is that you have to usually pay a smaller amount on a monthly basis, along with a lower rate of interest. However, before you make the decision, you are required to consider the respective pros & cons of applying for the debt consolidation loan.
Benefits of Debt Consolidation Loan
Debt consolidation loans are known to be handy when you are facing financial burdens, especially the task of paying off debts. Some of the potential benefits of this type of loan to look out for are:
Ease of Managing Payment Deadlines: A debt consolidation loan is known to combine all the respective debts into a single lump sum. This implies that you are only required to worry about a single payment. The loan is capable of consolidating the finances whether it be your credit card payments or car loan payments, vehicle repair costs, or rental payments. As such, there is no more requirement of keeping a track of when your payments are due. You can manage the overall payments efficiently by putting all the debt amounts into a single lump sum.
Lower Interest Rates: One of the major problems of having multiple smaller debts is that each one of them will have individual interest rates added to the overall debt amount every month. Therefore, when you apply for the debt consolidation loan, it implies that you are just required to focus on a single interest rate. This amount turns out to be lower for a larger amount.
Reduced Risk of Collateral Repossession: One of the best ways of lowering the interest rate on the subsequent loan amount is by offering the asset up in the form of collateral. When you tend to offer collateral, it serves to be a great way to manage your day-to-day payments. With a debt consolidation loan, there is a single asset that is offered as collateral. As such, this reduces the overall risk of collateral repossession.
Demerits of Debt Consolidation Loan
– You might have to pay a specific fee.
– Collateral in the form of house or car is required in some cases.
– The overall credit score might drop for some time because of the involvement of in-depth inquiry.
Debt Consolidation Loan Vs. Balance Transfer Card
A balance transfer card serves as yet another popular option of debt consolidation. If you have accumulated debt on your credit card and follow this approach, you can transfer the balance onto some card with a lower interest rate. While it might sound similar, the functioning of a balance transfer card is quite distinct from that of the debt consolidation loan.
For instance, the balance transfer card can only be utilized for paying off credit card debts and transferring the credit card balance. However, with a debt consolidation loan, you are capable of paying off various kinds of debts, including auto loans and student loans as well.
How to Choose the Right Debt Consolidation Loan?
If you are a beginner, you should check out the specific types of loans for which you are eligible. You can research the same on multiple online portals. Then, you can go for comparing the available deals out there. Based on your preference & requirement, you can choose the most reliable loan plan.